Bootstrap Results from the State Space from Representation of the Heath-Jarrow-Morton Model

U. of Technology, Sydney Finance and Economics Working Paper No. 66

12 Pages Posted: 21 Feb 2006

See all articles by Ramaprasad Bhar

Ramaprasad Bhar

UNSW, Risk and Actuarial Studies

Carl Chiarella

University of Technology, Sydney - UTS Business School, Finance Discipline Group

Date Written: August 1996

Abstract

This paper builds upon the authors' previous work on transformation of the Heath-Jarrow-Morton (HJM) model of the term structure of interest rates to state space form for a fairly general class of volatility specification including stochastic variables. Estimation of this volatility function is at the heart of the identification of the HJM model. The paper develops a bootstrap procedure for the HJM model cast into the non-linear filtering framework to analyse the statistical significance of the estimators. It is shown that not all combinations of the parameters of the volatility function are equally likely. The procedure also reveals distributional properties of the instantaneous spot rate of interest implied by the HJM model.

Suggested Citation

Bhar, Ramaprasad and Chiarella, Carl, Bootstrap Results from the State Space from Representation of the Heath-Jarrow-Morton Model (August 1996). U. of Technology, Sydney Finance and Economics Working Paper No. 66, Available at SSRN: https://ssrn.com/abstract=882569 or http://dx.doi.org/10.2139/ssrn.882569

Ramaprasad Bhar

UNSW, Risk and Actuarial Studies ( email )

Sydney, NSW 2052
Australia

Carl Chiarella (Contact Author)

University of Technology, Sydney - UTS Business School, Finance Discipline Group ( email )

PO Box 123
Broadway, NSW 2007
Australia
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